REPORT TITLE:
Contracts and Procurement


DESCRIPTION:
Specifies that subcontractors provide evidence to contractors of
a valid union trust fund contribution bond, a performance and
payment bond, any other bond, or other form of mutually-
acceptable collateral.  Imposes penalties on contractors for
failing to properly pay amounts owed to subcontractors.  Requires
the procurement policy board to adopt rules on prompt payment and
retainage.  (SB2988 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2988
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 2000                                H.D. 2
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO PUBLIC CONTRACTS AND PROCUREMENT.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that after receiving
 
 2 payment for construction projects, prime contractors sometimes do
 
 3 not make timely payments to subcontractors.  One of the principal
 
 4 reasons for this is the prime contractors' liability for
 
 5 subcontractors union trust fund payments.  Often, the long delay
 
 6 in receiving full clearance from union trust funds results in
 
 7 corresponding delays in payments to subcontractors.
 
 8      The legislature also finds that earlier legislative action
 
 9 on the issue resulted in divisive conflict between construction
 
10 industry groups.  To avoid further rancor, representatives from
 
11 various construction industry organizations established an
 
12 informal task force to reconcile differences.  After many months
 
13 of open and sometimes heated debate, the members of the task
 
14 force acquired a new respect for the unique problems facing their
 
15 counterparts and crafted a partial solution to the thorny issue
 
16 of prompt payment.  The proposal provides that prime contractors
 
17 make timely payments to subcontractors who possess a trust fund
 
18 contribution bond or a performance/payment bond.  This proposal
 
19 makes significant progress toward addressing the subcontractors'
 
20 concern for prompt payment, and the prime contractors' concern
 

 
Page 2                                                     2988
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 1 regarding liability for union trust fund benefit payments.
 
 2      The purpose of this Act is to ensure prompt payment on state
 
 3 projects by contractors to subcontractors by:
 
 4      (1)  Specifying that subcontractors provide evidence to
 
 5           contractors of a valid union trust fund benefit payment
 
 6           bond, performance/payment bond, other bond, or another
 
 7           mutually agreeable form of collateral;
 
 8      (2)  Imposing penalties on contractors for failing to
 
 9           properly pay amounts owed to subcontractors; and
 
10      (3)  Requiring the policy board to adopt rules on prompt
 
11           payment and retainage.
 
12      SECTION 2.  Section 103-10.5, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "[[]�103-10.5[]]  Prompt payment.  (a)  Any money, other
 
15 than retainage, paid to a contractor shall be dispersed to
 
16 subcontractors within ten days after receipt of the money in
 
17 accordance with the terms of the subcontract[,]; provided that
 
18 the subcontractor has met all the terms and conditions of the
 
19 subcontract and there are no bona fide disputes[.] on which the
 
20 procurement agency has withheld payment.
 
21      (b)  Upon final payment to the contractor, full payment to
 
22 the subcontractor, including retainage, shall be made within ten
 

 
 
 
Page 3                                                     2988
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 1 days after receipt of the money[,]; provided there are no bona
 
 2 fide disputes over the subcontractor's performance under the
 
 3 subcontract.
 
 4      (c)  Where a subcontractor has provided evidence to the
 
 5 contractor of:
 
 6      (1)  A valid union trust fund contribution bond acceptable
 
 7           to the contractor in an amount not less than three
 
 8           months of the subcontractor's trust fund contribution;
 
 9      (2)  A performance and payment bond for the project executed
 
10           by a surety company authorized to do business in the
 
11           State;
 
12      (3)  Any other bond acceptable to the contractor; or
 
13      (4)  Any other form of mutually-acceptable collateral;
 
14 and the contractor fails to pay in accordance with this section,
 
15 a penalty of one and one-half per cent per month shall be imposed
 
16 on the outstanding amounts due to the subcontractor.  The penalty
 
17 may be withheld from future payment due to the contractor.  Where
 
18 a contractor has violated subsection (b), three or more times
 
19 within two years of the first violation, the contractor shall be
 
20 referred to the contractor license board by the procurement
 
21 agency for action under section 444-17(14)."
 
22      SECTION 3.  Section 103D-501, Hawaii Revised Statutes, is
 
23 amended by amending subsection (d) to read as follows:
 

 
Page 4                                                     2988
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                                                        H.D. 2
                                                        

 
 1      "(d)  The policy board shall adopt rules requiring the
 
 2 inclusion in contracts of clauses providing for appropriate
 
 3 remedies and covering the following subjects:
 
 4      (1)  Liquidated damages as appropriate;
 
 5      (2)  Specified excuses for delay or nonperformance;
 
 6      (3)  Termination of the contract for default; [and]
 
 7      (4)  Termination of the contract in whole or in part for the
 
 8           convenience of the governmental body[.]; and
 
 9      (5)  Prompt payment and retainage."
 
10      SECTION 4.  Statutory material to be repealed is bracketed.
 
11 New statutory material is underscored.
 
12      SECTION 5.  This Act shall take effect on July 1, 2000, and
 
13 shall apply to all public contracts entered into after June 30,
 
14 2000.